Executives: Lars Machenil – Chief Financial

Officer
Analysts: Lorraine Quoirez – UBS Jean-Francois Neuez – Goldman Sachs Delphine Lee – JPMorgan Tarik El Mejjad – Bank of America Merrill Lynch Flora Benhakoun – Deutsche Bank Nick Davey – Redburn Partners Bruce Hamilton – Morgan Stanley Stefan Stalmann – Autonomous Research Anke Reingen – RBC Capital Markets Kirish Vijayarajah – Barclays Capital Jean-Pierre Lambert – Keefe, Bruyette & Woods Pierre Chedeville – CM-CIC Market Solutions Alex Koagne – Natixis Maxence Le Gouvello – Jefferies Geoff Dawes – Societe

Generale
Operator: Good afternoon, ladies and gentlemen, and welcome to the presentation of BNP Paribas Second Quarter 2016 results. For your information, this conference is being recorded. Supporting slide are available on BNP IR website, www.invest.bnpparibas.com. [Operator Instructions]. I would like to hand the call over to Lars Machenil, Chief Financial Officer.

Please go ahead, sir.

Lars Machenil: Thank you, operator. Good afternoon, fine ladies and gentlemen. Welcome to our second quarter results presentation. In usual way, I’ll take you through our Q2 results presentation and then hand it over to you for questions.

So if we start with our key slide, 3, in – where you see that in Q2 revenues progressed by 2.2%, with the operating divisions showing a positive evolution on a like-for-like basis. They were, however, on one hand, impacted by a negative foreign exchange evolution, but on the other hand, they benefited from the capital gain on the sale of Visa Europe shares. Costs, were relatively flat compared to last year. Cost of risk was significantly down, standing at a low 45 basis points, with most businesses improving or remaining at a low level. The Group’s net result was stable, at a high level, which was almost €2.6 billion.

Excluding the exceptional elements of the semester, which were positive, the Group’s return on equity improved to 9.7%. And if you prefer return on tangible equity, that would stand at 11.6% for you. The Group’s solid and recurrent capital generation was confirmed a tribute to its diversified approach, and it further improved with 10 basis points. And a fully loaded Common Equity Tier 1 ratio, reached such 11.1%. Thus, in the second quarter BNP Paribas delivered good results and confirms its solid organic capital generation.

Now, if we quickly turn to slide 5, on the exceptional elements, you can see that pre-tax, they stood at roughly the same level as last year. And as I said, this time they include of course Visa Europe. Advancing to slide 6, you can see that the bank delivered a good overall performance in a still challenging environment. Net income excluding one-offs actually stood at €2.2 billion, a that below what we had last year. So if we now skip ahead to slide number 7, you get a picture for the first semester, where the bank showed its good resilience despite a particular unfavorable environment, as you remember, in the first quarter.

So net income, net of one-offs, reached €3.8 billion, almost at the high level of last year. This in turn means that we delivered strong returns, as I said just there, and an ROE of 9.7%, including those positive one-offs at 11.6% on tangible equity. When calculated according to the parameters set forth in our plan 2014-2016, namely on a basis of a Common Equity Tier 1 ratio of 10%, this annualized ROE stood at 10.5%, so in line with our target. So focusing on revenues of the operating divisions, you can see by flicking to slide 8 that revenues of the operating divisions marked a 0.7% increase at constant scope and exchange rates. Domestic markets held up well in a low-rate environment.

IFS show a rise in revenues, and CIB delivered 3.6% revenue growth compared to the already-high base of Q2 last year. Advancing to the following slide, number 9, you’ll see that costs of the operating divisions were higher on the back of this business growth, the implementation of new regulations and by the ongoing strengthening of our compliance, as you’ve been accustomed to now, the cost savings accruing from our Simple and Efficient plan managed to offset the natural drift in costs. If we now shift to another element of the P&L, namely cost of risk, I would kindly ask you to flick through the three dedicated slides on this theme, which start at slide 10, You can see that the cost of risk declined significantly versus last year to stand at a low 45 basis points. On the whole, it benefited from the good origination policy of the Group, as you’re accustomed to, as well as the low-interest-rate environment, which contributed to a reduction of the cost of risk. Looking at the different businesses one at a time, starting with corporate banking, which marked another quarter of low cost of risk.

As a reminder, the second quarter of last year had benefited from net write-backs. Looking at our domestic markets, slide 11, cost of risk was still low in our French and Belgium retail, while it continued to decrease significantly at BNL, where it improved by 40 basis points year-on-year. In the other retail businesses, slide 12, personal finance saw a sharp decline thanks to the low-rate environment and the gradual shift towards products with a better risk profile, like auto lending. Europe-Mediterranean’s cost of risk was down this quarter, while BancWest remained at a very low level. If we now leave the cost of risk and quickly go to slide 13, you can see our Simple and Efficient plan, which delivered an additional €153 million recurring cost savings, taking it to a total cumulative of €3.1 billion.

And you do know that we no longer have costs, transformation costs related to this. On the following slide, number 14, just a quick reminder of our diversified business model in terms of countries and businesses, which imply that we have no concentration by country, business or sector and that none of our businesses represent more than 16% of the total allocated capital. Moreover, our integrated business model is fueled by cross selling between the different businesses. And this basically means that BNP Paribas Group has a strong resilience in changing and complex environments. And last but not least, please allow us to do a bit of marketing as the effectiveness of our diversified business model has been appreciated not only by you, but also by Euromoney, who voted BNP Paribas as world’s best bank 2016.

Now, turning to our financial structure on slide 16, you can see the further improvement of our Common Equity Tier 1 ratio that I mentioned. The 10 bps improvement resulted from the combination of Q2 results, of course net of 45% dividend payout, as well as the increase in risk-weighted assets at constant rates. I remind you that, overall, the foreign exchange effect on this ratio is negligible. And so our Basel III – so yes, sorry, that’s on the Common Equity Tier 1. If we look at the leverage ratio, it stood stable at 4%, and the liquidity coverage ratio stood at 112%.

To complete this introductory part, kindly flick to slide 17, where you can see the continued growth of our net book value per share. At the end of June, our full book value per share stood at €71.8, while our tangible book value per share exceeded €61. So finally, ladies and gentlemen, if you could now advance to the divisional results, starting with retail and banking services. I’ll do domestic markets, if you don’t mind, in a sentence that’s on the slide 19. So loan demand continued to recover in the Eurozone, as depicted by the 8.7% loan growth of our domestic markets.

Deposit gathering remained sustained, with a 5.5% across all the networks. The development of Hello bank! continued successfully as it on-boarded more than 200,000 new clients in the first semester of the year. We’re also continuing to expand our digital offering beyond these things, with the forthcoming launch of a new app called Wa!, which is an innovative, secure, multi-service payment solution through mobile phone that combines payments, loyalty programs, coupons and so forth. If you want to know more on this I ask you to peruse slide 20 of the slide pack, which provides additional information on this new innovative application called Wa! Looking at the P&L, revenue stood at €4 billion, down slightly versus last year due to the combination of low rates and a drop in financial fees in all the networks due to the still unfavorable market environment this quarter. Costs were higher but stable on a comparable basis, and excluding one-offs, particularly in Belgium retail in the second quarter of last year.

Cost of risk in our domestic markets was lower, especially at BNL. And pre-tax income held up well at €1.1 billion, a gentle touch lower compared to last year. And so if I do, in synthesis, the elements per main entity, French retail reflected the impact of the low-interest-rate environment. There was a pickup in loan origination, with volumes up between the first and the second quarter. BNL improved its income contribution thanks to a significant decline in cost of risk.

Belgium retail confirmed good sales and marketing drive. And the specialized businesses, Arval Leasing and the like, delivered good business growth and a sharp rise in income. And still, while we are on these specialized businesses, I would like to touch on Arval. So if you leap to slide 25, we focus on the swift integration of GE Fleet Services Europe, which is very well underway. As you might know, thanks to this acquisition that was closed in November of last year, Arval has become the leader in Europe, with a finance fleet of nearly 900,000 vehicles.

The addition general of this GE Fleet Services has meant that Arval is now the market leader in France, Italy, Spain, Belgium, and it nearly tripled its footprint in Germany. Overall, this GE acquisition is expected to generate some €45 million of synergies over the next three years, essentially deriving from cost synergies, as you can see on this illustrative slide. Restructuring costs are estimated at around €50 million and will be booked in the corporate center over the next three years. So the GE Fleet acquisition provides additional fuel in the engine of Arval business, which is truly firing on all cylinders. Still, on retail banking and services, if we now turn to the next slide, which is 26, we look at international financial services division, which delivered a good overall performance.

You will see that personal finance showed sustained business activities, as did international retail banking. And insurance and wealth and asset management showed good asset inflows in all businesses. On the P&L, revenues were visually at that lower, but in fact they progressed by 1.3% on a like-for-like basis. And this thanks to a lower cost of risk. Pre-tax income improved to €1.3 billion, up 2.5% like-for-like.

If I go into a bit more detail for each of these businesses, I think it might be an interesting little journey. You can see by advancing to slide 27 that personal finance saw sustained business activity in the quarter, with outstanding loans increasing by 9%, driven by a higher demand across the Eurozone. Alongside this, the digitalization of the business is progressing, as depicted on the chart, for example, by the increasing number of files that are digitally processed. The first half of the year, the number of files with digital signature was up 15% on the same period last year. When we look at the dollars and cents, so personal finance revenues were impacted by a negative foreign exchange effect this quarter.

At constant scope and exchange rate, they were up 2.8%, on the back of volume growth and a gradual shift towards products with a better risk profile. Goods – and as I said, this is, for example, the shift into we’re primarily. Good cost control, slightly flattered by a one-off, coupled with a significant reduction of the cost of risk, resulted in a sizeable increase of the pre-tax income, which reached €364 million, up nearly 20% at constant scope and exchange rates. So in conclusion, personal finance continued to perform strongly in the second quarter, confirming its significant contribution to the Group’s result. Now, if we leave the Eurozone retail activities, let’s look at our Europe-Med business first, on slide 28.

Business activities progressed well both in terms of loans and deposits. Our digital banks in this zone continued to attract new clients. CEPTETEB in Turkey has already reached 290,000 clients, while BGZOptma in Poland has close to 180,000. At constant scope and exchange rates and excluding non-recurring items, revenues progressed, while cost increased due to combined impact of a new banking tax in Poland and a higher level of activity. Cost of risk was lower this quarter, while associated companies showed a higher contribution in Q2.

On the whole, Europe-Med marked good business growth, while its income was impacted by a non-recurring items this quarter, leading to a 13% reduction versus last year. Now, if we leave the continent this time and go onto another continent, namely switch over to the U.S., with BancWest’s results on slide 29. First, maybe reminding us all that a milestone of this quarter was the fact that the bank passed the CCAR test at the first attempt, confirming the solidity of our US retail banking activities. These banking activities continued their good evolution, with deposits increasing by over 6% and loans by nearly 8%. Assets under management in our private banking were also up, standing at almost $11 billion at the end of June.

At constant scope and exchange rates, so bringing it back to euros, revenues were about 1% higher, net of some capital gains on loan sales book last year. Globally, revenues were penalized by the lower USD yield curve compared to last year. Costs were higher on the back of investments to strengthen the commercial setup, like, for example, private banking, like personal finance. And then of course also in preparation for the IPO of FHI, while cost of risk remained low. As a result, pre-tax income came in lower, at €181 million in the second quarter.

If with this you could now kindly flick to slide 30, where we look at our savings and insurance businesses, whose assets under management progressed to €967 billion at the end of June. We had strong asset inflows in the semester, driven by a strong performance in Q2 in all business units. If we look at the insurance business on slide 31, revenues progressed on the back of a higher level of capital gains realized this quarter. Costs remained well under control, leading to a pre-tax income of €387 million, up 13% versus last year. Looking then at wealth and asset management, as said, on the back of good inflows, revenue showed good resistance in an unfavorable market context.

Effective cost control meant that pre-tax income was only marginally lower, at €181 million. in the second quarter. To sum up, our insurance business marked a rise in income in the second quarter, while our wealth and asset management showed good resistance in a still unfavorable context. So this concludes retail banking and services for this quarter. If we now do the last part of our businesses, if you could kindly cast your eyes and stay with me for a few more minutes, on slide 32, on corporate and institutional banking.

Revenues topped €3 billion, marking good overall performance. They progressed by 1.4% versus the high comparison base in the second quarter of 2016 on the back of a good performance in global markets and corporate banking, while security services were slightly lower. Operating expenses increased on the back of this higher level of activity. Besides, the higher regulatory cost related to things like setting up IHC and strengthening compliance were more than offset by cost savings. So CIB’s pre-tax income came just over €900 million, lower than last year, but bearing in mind that the second quarter of 2015 was a high comparison base with a particularly low cost of risk and a positive effect of the non-operating items.

So now turning to the next two slides, that’s 33, 34, let’s take a closer look at the three business lines, starting with global markets, which showed a strong rebound compared to the previous quarters, so that is Q1 2016, as client activity picked up. Fixed income’s revenues increased significantly, topping €1 billion thanks to sustained activity, rates and ForEx, as well as good performances on credit and bond issuance. In the first semester we confirmed our top rankings in terms of euro-bond issuance and ranked number eight for all international bonds. Equity and prime services, they were down, but the comparison base of the prior year was particularly high. And while to top it off, Arval remained at a very low level also in the second quarter.

Securities services saw a moderate contraction of its revenues, mostly due to the lower stock markets and the reduced levels of funds, subscriptions and redemptions. So on the back of those movements, outstandings were more or less stable in corporate banking. Revenue growth was driven by higher volumes and good commission income this quarter. Transaction banking activities progressed well, especially – and you know we like it a lot – cash management, as did cross-border financing and advisory. So concurrently, we’re proceeding as planned with the implementation of the transformation at CIB.

By way of example, on the cost-efficiency side, we’ve launched 55 products to align IT systems in global markets. And regarding capital productivity, we’ve already disposed or securitized some €6 billion of risk-weighted assets. I remind you, we were targeting €20 billion over the plan, so that I think is making good progress. And so to wrap it up, a very good overall performance for our CIB in the second quarter. So this concludes my introductory remarks for our second quarter results.

As a takeaway, if I may, so one, on a like-for-like basis, revenues of the operating divisions increased despite a still difficult environment this quarter. Two, the Group cost of risk marked a significant improvement. Three, we confirmed a solid organic capital generation, which contributed to the further improved Common Equity Tier 1 ratio, which stood at 11.1%. And four, we generated an ROE in line with our planned target. Ladies and gentlemen, thank you very much for your attention.

I’m now ready to take your questions.

Operator: [Operator Instructions] The first question is coming from the line of Lorraine Quoirez from UBS. Please go ahead.

Lorraine Quoirez: Hi, Lars. Thank you for this presentation.

Just three questions for me. The first one is can you talk a little bit about your strategy at BancWest and maybe give us a little hint of what’s the profitability of the business excluding First Hawaiian? I see there are quite a lot of investments done in this division over the last few quarters, so what sort of revenue growth are you expecting in the next few years to come to improve profitability? Then my second question would be on French retail. I’ve seen a headline that you now are guiding for 2%, 3% of decline in revenues for this year. And so when do you actually expect a stabilization of revenues, if any? And finally, in Italy, do you have any plan on investing in the Atlante fund? And any color on this would be helpful. Thank you.

Lars Machenil: Lorraine, thank you for your questions. I’ll take them one at a time. With respect to BancWest, well, it’s too soon to give you a strategy. You – we are ending a plan, as it stands, and we are working on the next wave, but I can give you some further color. So indeed, on the costs of BancWest have been weighing all the efforts that have been done for CCAR, but that is now basically behind us.

And that means that the franchise is now fully sound and fully operating and ready to further work on leveraging the overall BNP Paribas environment, which means, like we’ve been talking about private banking. So private banking, we are basically setting that up in the concepts as we have them in Europe, so part leveraging what we do in our global franchise of wealth management, which is working well, €10.8 billion of assets under the management. Another thing is that the franchise of personal finance or consumer finance that we have in Europe, isn’t that different than what we have in the US. And so also there we are further exploring options to stimulate growth. And we talked previously also about corporate banking.

So we’re fully committed to the US franchises. We’re very pleased with the CCAR. We have created, on July 1, the IHC. So we have a very good, freshly minted platform that we are leveraging and cross selling and evolving along that road. So for a full strategy, I would say let’s come back when we’ve done all of these things and we’ll give you further highlights.

When it comes to French retail, there’s maybe one thing, if I may. I haven’t been saying it for a while, but you shouldn’t judge a book by its cover. So if you look at – and know that BNP Paribas has twice Paris in its name and so one focuses on French retail. But French retail, it’s part of what we do in our domestic markets, so it’s part of a much larger whole, and where there are different elements that react differently onto low interest rates. So in that – if you look at that total part, you can see that things like Belgium have capacities in repricing, that we do have our specialized lending activities which go in there.

And if, for example, you look over the first six months in that entity you see that there is a quasi-stable topline and actually a 1% lift in the pre-tax income because the cost of risk is basically tapering off on the back of these low-rate environments. But then again, each of these pieces is – the speed at which it adapts and the way in which it adapts to it is of course different. And so indeed, in French retail, where there is low interest rate, where there has been in the first six months a lower demand when it comes to transactions, so the financial commissions have been lower. So on this particular part, one should indeed be careful on – or conservative on the guiding going forward. But again, as I said, you should look – when you look at our domestic markets, you should look at the wider area.

When it comes to your question on Italy, you do know that we of course are present in Italy through BNL, which is a fine franchise. BNL of course, just like all the rest, has been impacted facing the headwinds in the Italian economy. You do know that a couple of years ago we decided to do a de- marketing to basically reposition ourselves even more on the better counterparties in Italy, which basically has stimulated the tapering off of the cost of risk. So, which basically means that for us at BNP Paribas, the non-performing loans is not really an issue. And that basically means that we fuel all the capital that we have – that we are – have available, let’s say, we fuel that into the Italian economy through our BNL franchise, as you can see by the first pickup in lending activities in BNL.

Lorraine Quoirez: Thank you. And regarding Atlante?

Lars Machenil: No. As you know, on Atlante, as I said, as we are – when we look at the capital that we redeploy, as we are on a trajectory to accumulate capital, we have to decide where to deploy it. And we decided to redeploy it through BNL into the Italian economy instead of Atlante.

Lorraine Quoirez: Okay.

Very clear. Thank you.

Operator: Next question is coming from the line of Jean-Francois Neuez from Goldman Sachs. Please go ahead. Jean-

Francois Neuez: Hi.

I just wanted to ask you a quick question on the capital markets business. This is a business where it’s been difficult for you to improve the operating efficiency over the years. Even when you had revenue growth, it was difficult to contain the cost. At the beginning of the year, there was an initiative to improve the cost-to-income ratio further over the next couple of years, but this quarter you’ve got some revenue growth, yet it’s difficult to see that translating into bottom-line growth. Can you explain to us maybe more, not necessarily the savings, but the phasing of the savings or whether there is any hindrance that has come afterwards and that we hadn’t planned for in the first place?

Lars Machenil: Sure.

Well, the first thing is let me remind us all that indeed for us in Europe, CIB activities are required to basically help Europe achieve its objective to the finance more to the markets than through the banks. And so having CIBs active to help things that are originated by the banks getting into the market is important. At the same time, there is indeed a concern by the regulators. Not a concern, but there is a desire to regulate strongly these activities. So that means that there is quite some adaptation that is going on.

And so that is what we basically embarked upon. We basically see several of competitors saying we’ll basically retract out of parts of businesses. As you know, we basically are committed to that, but it means that we have to further improve. And our improvement, which is an improvement objective of 8 points of return on notional equity, consists of several levers. There is one lever 5 points out of it, which is cost reduction.

Then there is 2 which are coming from, let’s say, capital efficiency, which is reducing [indiscernible] of risk-weighted assets which are yielding below where we want them to be. And 6 of them have been gotten – have been moved out of the balance sheet this quarter. And then there is one part which is basically stemming from growth. Now, when you look at this, the thing is, within global markets’ activities the way things evolve and the way you look at things is, quarter-by- quarter, a bit complicated. The first quarter is impacted by IFRIC 21, which is basically having a certain impact.

Then there is evolutions on bonuses, which reflect the activity, which you see in the second quarter. But those are not only linked of course to the top line. They are linked to the bottom line, so you also have to look at the cost of risk, which if you look at it you will see fluctuations between the periods. So what is important is you have to look at this at an annualized way and to look through all of these elements. And if you do this, of course we are not yet at the end of the year, but if you look at where we stand in 2016, you see that we have a cost income of 72.6%, which compares to a 73.5% one in 2015.

Jean-

Francois Neuez: Okay. And then the second part of my question was on your point on risk-weighted assets. So there was a strong reduction in the first quarter, particular for capital markets. This quarter there has been actually a relatively decent pickup in the risk-weighted assets there, and that was I guess maybe a little bit unexpected. And also, I just wanted to ask whether there was any exceptionality in fixed income due to Brexit, as U.S.

banks have commented, and that we shouldn’t expect to reoccur going forward or whether there was business as usual. I’m just trying to understand sustainability here.

Lars Machenil: Sure. No, on the Brexit, I don’t think there has been much to say about it on the impact of the quarter. When it comes to the RWAs, yes, you’re right to point out.

I’m actually – if you look at the second quarter in general, not only at global markets you can see that the RWAs have increased. But that is good. That basically reflects the pickup in what we see in Europe with the lending activity going up. That’s what we see in other regions. So that is fine.

And actually, as you do know in global markets, you also have some cyclicality. Typically, the second quarter is a busy quarter. It’s a quarter which has the dividend season. So there’s a lot of things happening. So you have some cyclical – look at the balance sheet, Jean-Francois.

Typically, the balance sheet, you start from a relatively small balance sheet at the beginning of the year which then basically grows until the second quarter. And which then basically tapers back off. So from that point of view, yes, you should look through it on one hand that there is on the retail side the very positive news that the risk-weighted assets go up. You have the seasonality on the side of markets. And then you have the underlying striping out of the RWAs that we want to get rid of.

And of course, let’s not forget, there has – given the evolution of the euro in the RWAs, now don’t – there is also a part of ForEx of course, right? They are a bit inflated by ForEx. But there is an underlying decent bit of growth. Jean-

Francois Neuez: But just to summarize, there was nothing exceptional in the run rate of revenue, positively speaking, due to spiking trading activity on Brexit or anything?

Lars Machenil: Not materially. Jean-

Francois Neuez: Okay, great, thank you very much.

Operator: Next question is coming from the line of Delphine Lee from JPMorgan.

Please go ahead.

Delphine Lee: Good afternoon, Lars, thanks for taking my questions. A few from my side. First of all, to start with your ROE target. I can see from slide 72 that it is calculated deducing also the systemic taxes and the Single Resolution Fund and all the taxes actually.

Is that something new? Or is your target going to be based as well on the same type of calculation? Also, related to that, just a little bit surprised by the level of your – the cost of the hybrids of EUR277 million, which seems to be a little bit higher in terms of run rate versus what we have seen in previous quarters. Is there anything special or one-off in that item? Second question is on the stress tests. Obviously, we will get the results only on Friday. But anything you could tell us in terms of color on what you’ve learned from the process or maybe how you’re thinking about your capital ratios versus the potential new SREP level? And then lastly, on Italy, given the focus on asset quality, is there any chance we could get some ratios on NPLs regarding BNL or coverage? Thank you.

Lars Machenil: All right, Delphine.

Thank you for your questions. Allow me to clarify the return on equity. Because I think we need to clarify. So if you look at page 72 where we indeed clarify the calculation of things, it is not excluding the Single Resolution. So what we’ve done in the mathematics is you take the results of the first half year, which then basically – from which you remove, indeed, the exceptional elements which are positive.

And you also remove the contribution to the resolution fund. And this, you basically multiply by two in order to have the full-year contribution. We do not add exceptional elements which are positive. However, we do add the contribution to the Single Resolution Fund. So it’s not that it is removed, we just want to make sure that it is taken spot.

That’s it. So we don’t – as it is something which is concentrated, it’s not accruing over the year, it’s happening in the first quarter. So if we would have multiplied it by four, it would have been horrendously wrong. So to be very clear, it is an ROE without exceptional but including the Single Resolution Fund, the Single Resolution Fund, of course, is spot. So that is on the ROE.

When it comes to the stress test, yes, fifth amendment, right? I cannot say anything; the fact is that it has been conducted very professionally. We’re very – as you can hear in my stance, we’re relaxed about it. We are a very solid bank. When it comes to the level of capital that eventually would come out of it, you’ll have to talk to the ECB. The closest thing I’ve seen is that the ECB will indeed clarify its Pillar 2 in a Pillar 2r and a Pillar 2g, which for those who are in the UK, corresponds to Pillar 2A and Pillar 2B.

Just like the English drive left, in Europe therefore they have to drive right, of course, give it a different labeling but the concept is the same. And they guided that all remaining equal that the P2R plus P2G should be similar to the P2. So that is a bit what I can say about it. So for the stress test, I propose we all log on tomorrow

at 22:00 Central European Time to take stock of what insights it brings. When it comes to Italy, yes, for us in Italy there are of course – we look at Italy from the BNP Paribas Group stance.

And so it is close to what we have at the Group level. I know that there is a uniform way, Italian way if I can say, to look at things which uses a bit of a different concept. And there, we stand at 57%.

Delphine Lee: And on the non-performing exposure ratio? NPL ratio?

Lars Machenil: There also, we don’t explicitly give that by country. But it is – yes.

Yes, it’s in the pillar, I don’t have it here with me, the exact amounts. Listen, we’ll come back to it. We’ll come back to it, okay?

Delphine Lee: And just to follow up on – because I think the EUR277 million from the remuneration on your subordinated notes which are deducted for the calculation of the ROE, it’s quite a high number. Is there anything exceptional in this?

Lars Machenil: No, no, that’s the number as it typically is. I mean I believe we have EUR7 billion of hybrids outstanding.

Delphine Lee: Okay, and then last one, on Pillar 2R or G, is that something that you will disclose?

Lars Machenil: Sorry, the…

Delphine Lee: On the Pillar 2G and the Pillar2R, is that something that you will disclose after the end of the year?

Lars Machenil: Delphine, you’re on the wrong call, you should ask the ECB. We’ll see what the ECB gives us instructions. It could be that the P2R is public, the P2G is not. We’ll have to see what they say.

Delphine Lee: Great, thank you very much.

Operator: Next question is coming from the line Tarik El Mejjad for Bank of America Merrill Lynch. Please go ahead. Tarik

El Mejjad: Hi, good morning, everyone. A couple of questions please. First of all, on First Hawaiian Banks.

There were some headlines this morning saying that the disposal will be done through 2017 or a bit beyond. A bit surprised by that. I thought you were planning to dispose all of it within next year? Especially that you need that to get quickly above 11.5% minimum capital and build some buffer. So should I interpret that that there’s no rush for it and then you don’t feel like really – you need to move capital here or is it difficult to IPO it? And second question is on the insurance. I’m a bit puzzled by the revenues, because it’s been swinging both sides for the last two quarters while in 2015 and before it was quite stable with the normal variations revenue line.

Did you change anything in the reporting there or it’s just market impacts? Thank you, that’s it from me.

Lars Machenil: Tarik, for me it’s good afternoon. But I may be in a different time zone than you are. Well, first of all, when it comes to Hawaii, there is not much I can say. As you know, these things are regulated.

As you can see from our solid and stable capital generation, we are not in a rush. So we’ll take our time to do this well and that’s all I can say. And when it comes to insurance, yes, I know. I know. The insurance hasn’t been kind with you, particularly for those who are banking analysts.

So let me remind you that on insurance – and I said it last quarter and I said it before – you have to look at – sadly, you have to look at the year performance because it’s over the year that the overall performance, what is due to the customers, is being assessed. And so if you look at the first quarter, there was a drop. That drop was basically stemming from the fact that some of the assets that we hold for the contracts with the clients are marked not in available for sale but are marked as fair value going through the P&L. And as markets have been evolving, as you’ll remember in the first quarter, that basically went down. So in total, that’s one aspect of what is happening into the P&L and of the performance of insurance.

So it’s a thing that goes mark to market. Next to that, you have the accruals on your instruments. And next to that, you have eventual capital gains. Now you can imagine that in the first quarter, maybe you wouldn’t have been rushing into doing capital gains whereas in the second quarter, where the environment and the markets were different, you might understand that that is what they do. So if you basically looked over the full six months, I think you’ll see a picture which is more reflecting of what it is.

And again, the full year is – I cannot say it enough, is the way you should look at it for insurance. So sorry for that, that is the way these things go. Tarik

El Mejjad: Okay, thank you.

Operator: Next question is coming from the line of Flora Benhakoun from Deutsche Bank. Please go ahead.

Flora Benhakoun: Good afternoon. Three questions from my side, please. The first question is on the revenues from the corporate center. If I’m not mistaken, I think you had guided for revenues for the full year excluding the own-debt gain and the DVA of around EUR450 million for the full year. That would obviously also exclude the gain on the Visa sale.

You are already above that level on an adjusted basis in H1. So I was wondering, as the first question, whether you could maybe clarify the guidance on corporate center revenues for the full year? The second question I have is regarding provisions. And that would be especially your view on the level of provisioning at BNL in personal finance and also in Europe and Mediterranean. The latter mostly on Turkey, actually, whether you think that the current level of provisioning in sustainable or whether there is a risk that provisions could go up? And the last question is on the French retail. So you’ve discussed already the change in guidance with now you expecting a revenue drop this year of 2% to 3%.

I was wondering whether this could be linked to maybe a change of direction of your bank on participation in mortgage renegotiations? Thank you.

Lars Machenil: Thank you, Flora. Before I answer this, maybe just one back or two back on the question of Delphine with respect to the ROE on a question of the EUR277 million TSDIs or AT1s where it was mentioned that the number is high. To clarify, the number is of course the full-year number. So when you look at the math, which is in the little table, we create the returns on a yearly basis and those returns have to be corrected for your AT1s.

And so the amount which is there is the full-year amount. So I hope this takes away any ambiguity that could have remained. And, Flora, onto your questions then. On the revenues, on corporate center, and so on average, if I am the conservative CFO that I am, when I look at what is basically the accrual in there, I keep on guiding that it is around EUR60 million every quarter. Now you do know that in there, there are things which are a little bit more volatile like there is our private equity activities.

Then there are quarters which are more volatile than others as there are dividend seasons like, for example, what you have now. And so that can indeed fluctuate a bit. So there’s two things I can say. I would consider the top line that we have over the first half year is there, it shouldn’t fluctuate. And again, the best outlook I can give for the next quarter is EUR60 million for every quarter.

But again, it can be a bit more, it can be a bit less. If I had a crystal ball, I would be doing your job and would be doing private equity investments and I would be bang on every single time. So that is on corporate center. When it comes to the provisions, on your question, so, yes. So at BNL, as you know, we have been doing this de-marketing, repositioning on the better kind of customers which has led to a tapering off of the cost of risk.

So that should continue. Again, if I knew exactly when we will touch the 100 basis points or below, listen, that is just a tad too early to say. But you see the direction. When it comes to personal finance, it’s the same thing. So personal finance, it’s tapering off.

For the reason that, first, we are further and continuously repositioning ourselves also there on the better customers. So car lending is the example, because it’s collateralized and so on and so forth. And so there, we guided that where in the past we were more around 200 basis points over outstanding, we’ve guided towards 180 basis points. When it comes to Europe, Mediterranean and in particular on your question in Turkey, as we said, we have a solid bank, we have very strong management, a very liquid situation. At this stage, there is nothing particular to mention.

When it comes to French situation, the thing is there is indeed the margin pressure that you talked about. When it comes to lending, we of course there, as we said earlier, we’ve been reinforcing the front side to be sure to attend to our clients in the best ways. And which you see already their impact. As if you compare the second quarter loan volume versus the first quarter, you can see a 1.1% raise in that.

Flora Benhakoun: Okay, thank you.

Operator: Next question is coming from the line of Nick Davey from Redburn Partners. Please go ahead.

Nick Davey: Good afternoon, everyone. Three questions please. The first one, just a quick follow up on that French retail question from Flora.

Just wanted to make sure I understand this correctly. So you’re now pointing to the fact that loan volumes are growing quarterly? Do we understand that right than that you’re now happy to participate more actively in the 10-year fixed rate market? And has anything really changed in your attitude to that market and the risks therein? Second question, please, just a high-level one on the operating leverage and the revenue and costs growth in your business. And you helpfully give us on slides 8 and 9, the like-for-like growth rates in constant currency terms. And costs are growing more quickly than revenues in every single one of your divisions. So could you just give us a bit of high-level color on what’s going to change that trend? Whether if this low growth, low yield curve environment remains, you have to redouble Simple & Efficient? Or is there a particular revenue acceleration catalyst that you’re particularly excited about? And thirdly, just a linked question.

We’ve obviously had lots of moves in the yield curve since the UK referendum. Are there any particular business lines that you’re worried about? Particularly on margin. I’m just thinking if the yield curve remains very flat for a prolonged period, where would you be most worried about margin dynamics? Thank you.

Lars Machenil: Thank you, Nick, for your questions. No, let me clarify.

When we say that we reinforced our commercial activates and that we reap the first fruit of this, we’re in particular talking about all kinds of mortgage – all kind of loans, in particular the non-mortgage ones. So I think of consumer finance and these kind of things. So that’s the kind of stuff now corporates, all the things that we have a knack for, that we are pointing to. So that is on that lending in France. Yes, when it comes to your generic question on operating leverage and the impacts of the yield.

So it is true that when you look the effect, if you look at domestic markets, domestic markets as a whole is an interesting case. What do you do in such an environment? In such an environment, you work on your top line, you work on your interest income line, in particular you reprice. You reprice if the market environment allows you to do it, on the deposits and/or on the asset side. Now on the asset side, it takes, of course, more time. If you look at Belgium, for example, what is it? Four or five weeks ago, we stepped up with 10 basis points the mortgage.

But of course, these things ramificate into your P&L at the speed of renewals. So that is things that you do. At the same time, what you also do is of course make sure that the services that you redeploy in these environments are rightly remunerated. So that means that these services have to be appropriately priced. Then of course you have the desire, often, of your clients and the fact that you can accompany them into other products, particularly off-balance sheet products.

And then of course the low interest rate has, let’s say, a quote-unquote, a benign effect on the cost of risk. Which is what you see both in France, in Italy and in the other activities. You see that trending down. And as I said, if you look at domestic markets, over the first half year, the bottom line is basically up 1%. And again, don’t take the French retail to be representative for BNP Paribas.

It is part of a larger setup which is our domestic markets in Europe which, yes, has a mix of tools to basically fight that low-interest-rate environment.

Nick Davey: That’s helpful, thank you. Quick follow up. On the sources of your loan growth in French retail then, is it fair to say that if the yield curve stays flat, you’re quite happy to sit on the sidelines and seed a bit of mortgage market share and you’re then focusing on the consumer and corporate segments?

Lars Machenil: I think, Nick, there is not one standard answer. You are in the areas where you can serve your clients, where you can create value.

And that is a day-to-day kind of activity that our bankers are doing.

Nick Davey: Okay, thank you.

Operator: The next question is coming from the line of Bruce Hamilton from Morgan Stanley. Please go ahead.

Bruce Hamilton: Thank you.

Good afternoon, Lars. A couple of questions. So firstly, just on your view onto the capital requirement. Given the split in the Pillar 2 now, does that change your view on buffer or the 12% minimum at steady state? And then secondly, how optimistic are you around a reduction in the 2% G-SIFI requirement as we get to year end, given review of cross-border? And then secondly, just going back to French retail, maybe asking another way. How would you think about the net interest income pool, say in three years’ time? So if we’re at 100 today, there’s no change in the curve and assuming the book – there’s no growth.

Where would that 100 be in three years? Would it be at 95? Just to understand how much you’ve got to do in terms of volumes of driving fee and commission growth o try and offset? Given obviously you’ve got the run-off of the bond portfolio working in the other direction. Thank you.

Lars Machenil: Bruce, thank you for your questions. Well, I think honestly on the [indiscernible] it is too early to say. Today, we work under a hypothesis that we have to reach 12%.

And that’s what we’re doing. We’re minding our own business; we’re stacking up capital. And that’s fine. So we’ll see what the clarification is with respect to that P2G. and it might lead that, yes, a management [indiscernible] over time might go away, but it is too early to say.

On the GSIB as well, we’ll have to wait what in November comes out. It is true that our balance sheet has shrunk quite a lot. You do know my point of view that for a European bank, everything that is outside of France being considered international exposure that goes against my grain. But okay, that’s how the text of the GSIB is drafted today. Will that change? Maybe, I don’t know.

So that is – there is nothing sensible I can say except of reminding you of these two elements. And I guess the rendezvous is in November when the updated lists will be made available. When it comes to interest income evolution, you sound like a supervisor. It’s like saying, let’s take a static thing and then calculate it. But a static thing doesn’t mean anything.

Even on a static thing, you have to take into account what the behavior of your consumer, your customer is and so on and so forth. So I think therefore it’s very difficult to say. I think as it is in these kind of things, you have to be very tactical, very close to your customers and finding the optimal between production at the right price, the fees that go with it, the fees that accompany it. And as you see what you have for the moment, I can only repeat if you look at the total mix of domestic markets, that leads to something which, yes, is quasi-stable at this stage

Bruce Hamilton: Thank you.

Operator: Thank you.

Next question is coming from the line of Stefan Stalmann of Autonomous Research. Please go ahead.

Stefan Stalmann: Hi, good afternoon, Lars. I have three questions please. The first one, starting with Brexit.

And I’m really more interested in your strategic reaction here. Are you already taking any preparations, initiating any preparations for what this might mean for your London-based operations in particular? Could you maybe give us a sense of how big your London branch is? And whether you have received signals by UK regulators about whether you may or may not have to subsidiarize this in particular scenarios? The second question relates to BancWest, and it comes back to something that I think Lorraine asked earlier. You obviously had quite a bit of cost buildup there for CCAR and for IHC and to get the First Hawaiian IPO done. But a lot of that may actually fall away or look better in the second half. Is there any way of thinking about the potential cost benefits here for the second half of the year? And the third tiny question, I notice that you have actually diluted yourself to a 60% ownership in your Ukrainian subsidiary by way of a capital increase there.

Is that a first installment of an exit? Or can you say anything there? Thank you very much.

Lars Machenil: Hi, Stefan, thank you for your questions. With the situation in the UK, so as a reminder, for BNP Paribas, as you know, we’re very diversified. So there is not one entity, region, which is dominant. So that if it would be impacted that it basically dents BNP Paribas.

So for example, the UK represents 2.5% of our pre-tax bottom line. If you look at our global markets activity, it is in a balanced setup between the UK and the European continent. And so for us, we’ve been there over 100 years, we’re very happy to be there. It’s a setup that allows us to serve our UK customers and our European continental customers. And so that’s it.

Now we will, at some point in time – not we, but the UK will start at some point in time a process which will – where things will be probably clarified. Clarified in the sense of, will the UK be part of a union the Norwegian style, so basically with banking passports, the Swiss style with maybe products but not services passports. That I do not know. And so one has to wait until these things start to clarify to answer any questions on structures. But as I said for us, we’re very balanced in our activities between one and the other and we’re very pleased and in particular, we’re very ready and remaining ready to our UK and continental European clients.

When it comes to BancWest, a couple of things. It is true that there has been a ramping up of cost which has to do with, for example, CCAR. It also has to do with that we are ramping up our new products and more cross-selling with the rest of the Group. And there is First Hawaiian Bank IPO that is also costing some dollars and cents. Now if you look at the total, if you look at the total cost income and you compare that with basically BancWest’s peers, you basically see that we’re still a tad better than the average.

Now that is not a good answer, though, but just to put it into perspective. And so what are the things that could improve? Now the things that could improve on the cost side, is that at some point in time, that IPO will be done. So that’s a cost that should go away. Secondly, let’s be very fair, CCAR is a very, very hard exercise and we wanted to – as you know, we’re very committed to the U.S. and we wanted a freshly- minted platform that was able to fire on all cylinders.

And so we basically went the extra mile to do it which basically means that we were not necessarily able to industrialize everything into the CCAR process. And so that is something we will do now. The good thing is, we passed, so we don’t have to worry necessarily on catching up on stuff. So we can focus on industrializing, which should basically bring down the costs going further as well. And then the fact that BancWest is now part of that IG that is newly created on July 1, which has one board, which has one – which could probably allow us to capture maybe some further synergies on the American soil between all the activities that we’re having.

So that is a bit the improvement levers that we see ahead of us. And in the Ukraine, no, this is just part – the ERD is also very focused on these kind of areas, agricultural kind of things. So it just made sense to diversify the funding and the ownership related to that of the bank. So there’s nothing. And of course, as you know, we are, in our Ukrainian activity, we are sizing it to a bank which is much more focused on the shorter-term kind of lending activities.

And so of course the overall footprint is reducing. But yes, that’s basically what I have to say about this.

Stefan Stalmann: All right, thank you very much.

Operator: Next question is coming from the line of Anke Reingen from RBC Capital Markets. Please go ahead.

Anke Reingen: Yes, good afternoon. I’ve three questions please. The first is coming back to slides 8 and 9 on your jaws. And I understand you’re talking about the revenue side of things. But do you think there is a need for you to address costs a bit more proactively as well? This is one of the areas you will be focusing on when you put your business plan together.

And second question is coming back on the €277 million, on the sub debt cost which I think it looks quite low. And if I remember correctly, you were – in the first quarter, we were adjusting for €380 million on an annual basis. So I just wonder if you can give us some more of a normal run rate here? What we should expect going forward? Then thirdly is on the – can you please update on the pension situation so what the impact of the decline in interest rates is on your pension position? Will it only be updated annually? But maybe you can give us a bit of an update during the year. Thank you very much.

Lars Machenil: Thank you, Anke.

If I take the first one and let me try to address this cost in a different way, so it is true that when we launched a plan, we said, listen, we do this simple and efficient plan to basically iron out any kind of natural drifts into the cost. That is what it does if you – we have a slide we can send you where you do that re-composition and you basically see that that is the case. Nevertheless, of course, there are development like GE so if you look at constant parameter and change, you basically see that the natural drifts are eliminated by Simple & Efficient. However, there are, of course, a series of regulatory costs which are hitting. I mean, if you look at the Single Resolution Fund that is picking up between 2015 and 2016 overall, if you look at other local taxes like what you have in Poland, like what you have in Belgium.

These things are providing for an additional lift. Then of course, you have also the efforts that we do on, for example, compliance and not only to be in line with what we agreed with U.S. authorities but the whole concept that we decided upon in order to do so. That then also includes CCAR if I can lump that into this. But as I said, if you then – that’s the first thing.

I’ll come back to that compliance, CCAR, regulatory kind of thing in a moment. The second thing, of course, is that at the same time at this moment, we are launching some digital kind of initiatives. I mean, Hello bank, it takes some cost to get that one done. This Wa! that I talked about, that does cost some money to set that up and so on and so forth. So these elements are basically weighing on it.

On your question on how to handle these two things, so when it comes to the compliance with CCAR and stuff like that, one would assume that going forward these things will be more and more industrialized, yes. So I mean, we wanted to be spick and span on compliance rapidly just like for CCAR. This means that sometimes you do things with human efforts instead of maybe the more efficient digitalized effort, so these are things that are to come. Now with that digitalization that we’re doing at this moment, of course, that digitalization is something that leads to a different way of servicing, we can lead to higher market shares, can lead to better penetration, can lead to – and so on and so forth and which, at some point in time, can lead to, of course, also pivoting effects versus the way you do standardized business. So these are all elements that we are working on while we are reflecting.

As you know, we’re ending our plan 2014-2016. We’re thinking about the elements going forward to get this on to the next wave. These are elements of reflection, of course, that we are taking up and that, once we have crystallized them out, we will be very happy to share with you in detail. When it comes to the TSDI, it seems that this is a very interesting topic of this call today, so after having verified that it is so full year, of course, because it’s a full year ROE, so why can it then be different between quarter-to-quarter? Well, it is, of course, that there is ForEx kind of differences which play. We do not only issue these instruments in euro, we issue them – and so that is giving these kinds of differences.

Then on the third one, on the pension, well, there is basically not much. We do reevaluate them every quarter, so it’s in the balance sheet. But it’s very limited. For us, not every pension plan has this kind of volatility. In France, it’s very limited.

We have a little bit of it in the UK. But the low interest rates, what it does on your liability side is then basically, well, if you wish the opposite of what is happening on the asset side. So we have very little impact on the UK on the liability side, which is basically offset by very little uptake on the asset side on the AFS. So basically all that is negligible on our Common Equity Tier 1 ratio. Thank you for asking.

Anke Reingen: Okay, thank you.

Operator: Next question is coming from the line of Kirish Vijayarajah from Barclays Capital. Please go ahead.

Kirish Vijayarajah: Yes, good afternoon, Lars. Just a follow-up on that CIB RWA development and the €6 billion of securitizations and sales that you’ve done, is it fair to assume that actually the bulk of that was actually reinvested back in the CIB division? I guess more importantly is that what you’ve got planned for the remaining €14 billion of sales and disposals in CIB, that you’re just going to reinvest that back in the business? Secondly, just a quick clarification on the dividend, I appreciate it’s early days to talk about the full year dividend, but how should we be thinking about the Visa gain in terms of applying our payout ratio assumptions? Do you include or exclude the Visa gain when you think about the dividend payouts for this year? Thank you.

Lars Machenil: Okay, thank you for your clarifying questions. On CIB RWA, again let me clarify, so indeed we made room for €6 billion, those €6 billion we typically want to redeploy it in activities where indeed – like we said, activities that are more related to higher margins or that lead to natural cross-sell and so forth. But on the other hand, don’t see that the €6 billion that we have reduced in a very structural way are in a very structural way consumed. As I said, within global markets, you typically have a bit of a spike in activities in the second quarter, which is a spike, right. It’s like the spike of the balance sheet.

It’s a spike on counterparty exposures, like on CCPs which are basically spiking. So yes, the idea is, of course, that we reduce them and we replace them, for like half of that amount roughly, with the higher-yielding kind of products, so that’s the idea. But again don’t see as if this quarter, it’s one for one, so it’s a structural reduction combined in a quarter where there is a bit more of a spike in the demand. On the dividend, our stance has always been – it’s very simple, not too complicated. We take the bottom line 45% – that’s it, so meaning 45% on Visa here to be very clear.

Kirish Vijayarajah: Okay, understood. That’s very clear. Thank you.

Operator: Next question is coming from the line of Jean-Pierre Lambert from Keefe, Bruyette & Woods. Please go ahead.

Jean-

Pierre Lambert: Hello. Good afternoon. Thank you for taking the questions. I would like to come back to French retail. The changing views on the outlook, if you could identify which are the key assumption changes or forecast changes underlying this.

Second question is regarding French retail – sorry, Italian retail at BNL where you still have minus 8.4% of NII development. How do you see that going forward in terms of improvement or eventually deterioration? Finally, on equities revenues, they were down 18% year-on-year and you indicated that the second quarter last year was particularly strong, but is there any particular underlying development in structured product or any particular subcategories of equity? Thank you very much.

Lars Machenil: Jean-Pierre, thank you very much for your questions. So no, on France, so what is a bit the trend that is a bit different. So one hand, there is the combination and the – size of the loan renegotiations and lapses, which is a bit in a different trend if you compare quarter-to- quarter and quarter-to-quarter back.

So that is that. Then the second thing is that, well, the fees, the financial fees from transactions done by our clients are lower than what we initially guided on. When we gave our initial guidance, it was at the annual results and so at that moment we assumed that there would be capital markets, equity markets which will be such that the retail investors would not be timid into those markets. Now what turned out is that they were timid in the first quarter and they remain timid in the second quarter, so that is why we guide this. But again I know you all guys talk about France, you don’t ask me about domestic market.

I have been saying it. Don’t take France as a bellwether for domestic markets, right. If you look at other domestic markets, you’ll see a trend which is basically fighting the low interest rate environment. When it comes to Italy on the question, you do know that we have embarked somewhat, two years ago now, on this devalore azione so de-marketing kind of activity where we get out of some of our heritage clients and reorient on the better counterparties. The Italians are looking at I me, I probably mispronounced devalore azione but anyway.

So that basically means that, although that exercise of de-marketing is now basically done – it basically ended, let’s say, for the biggest part, end of last year – that if you compare towards the second quarter of last year, you have the effect of volumes, because you basically get them out, but you do not necessarily get the other counterparties back in at that same speed. So that’s basically what you have at BNL. On your question on CIB equities, yes, so remind the second quarter, the second quarter was very high. Actually the second quarter 2015 was not far off our record first quarter 2016. You also do know that our geographical mix in this activity is geared towards European and Asian markets which have been more challenging than what we saw in the U.S.

market. Then let’s not forget, they might be on the phone. But we do have a focus actually on derivatives, because our cash business is done in an associated company called Exane. So that is basically what is underlying this trend. Jean-

Pierre Lambert: Thank you, very much.

Operator: Next question is coming from the line of Pierre Chedeville from CM-CIC Market Solutions. Please go ahead.

Pierre Chedeville: Yes, good afternoon, Lars. Two quick questions. First question regarding Europe, Mediterranean and profitability, we can see that the profitability is quite below your target and also significantly below the cost of equity.

These past two years we’ve been seeing that it was because of [indiscernible] but as you say a few minutes ago, [indiscernible] now seems to be more or less fixed, I would say. So my question was, of course, I understand that there are new regulation, new tax and particularly in Poland that impact the ROE. But more generally what do you think would be useful to at least reach a profitability in this area, mainly Turkey and Poland, to improve significantly the profitability of the business? Do you think, for instance, that you need to consolidate once again or do you see another ideas to improve? Because from a commercial point of view – and that’s what’s not very clear for me – things seem to be very booming. I don’t really understand why the profitability remains so low in this area. My second question relates to the insurance business.

You give very few information regarding this business and yet it’s something which is here again booming also. Could you give us – because as you said a few minutes ago, also that the net banking income doesn’t mean a lot in this area, but could you give us the revenue in terms of insurance accounting in life and P&C? Thank you very much.

Lars Machenil: Pierre, thank you for your questions. On emerging markets, you’re talking to the CFO, so let me give you the viewpoint of the CFO. So for me, these are investments let’s call it, options for the future.

So these options, they have to have a minimal size, yes. In these options, in retail, if you are below 5%, that basically is very difficult. But in Poland, in Turkey, we are there. We are a reference bank. We bring in all of those products that we can have from the Group, which gives us a competitive advantage.

We come in with our personal finance franchise, insurance franchise and so forth. Now the disadvantage of this is that, for example, when CIB does business with BGZ or with TEB or when insurance does it, well, you see it in the results, of course, of CIB and the like. The other thing is that, of course, there are still synergies to come, yes. Poland, it was 2%. It has grown now with the merger of BGZ.

There are synergies to come to further ramp it up. So what is important is that we can continue to be a reference bank in these entities with a 5% market share and therefore we feel confident that the ROE will be trending up. The ROE is trending up if you look at it year on year and so that is what we feel comfortable to have these options going forward. As I said, we’re very pleased with them. They are in active economies.

We have very solid setups and very strong management, so we are pleased with it. As I said, the ROE is trending up and that’s what I want to see. When it comes to insurance, yes, we – as I said, we have – years ago the choice has been made to cast the insurance in a banking setup, so the banking numbers that we give and that we provide are those. But I agree with you that me being an insurer at the base, there are indeed different ways to see that. It cannot be excluded that somewhere in the future, somewhere soon, you will be able to see the insurance in its natural environment which are called technical results life and non-life .

That is something that might come your way in the near future, but as of today, you have to live with the net banking and conform. Sorry for that.

Pierre Chedeville: Okay. Thank you very much.

Operator: Next question is coming from the line of Alex Koagne from Natixis.

Please go ahead sir.

Alex Koagne: Yes, hello, Lars, just two quick questions for me. The first one is on BNL. I saw that revenue growing on the Q-on-Q basis. I was just wondering if this trend is going to continue or other way to see it is if Q1 was the low base in term of revenue.

The second question is linked to RW growth, RWA growth. The question is should we expect – I mean, you are guiding for 2.5% RWA growth on annual basis. You have not reached that level so far. I think that, for the CIB, you are guiding for stable RWA to 2019 versus 2015. So the question is should we expect the 2.5% RWA growth to be again your target or could you just update that number going forward? Thank you.

Lars Machenil: Yes, Alex, thank you for your question. So indeed as I said, when you compare the second quarter 2015 at BNL with the second quarter of this year, you have this effect that I talked about of the de-marketing. I’m going to stop telling it in Italian. However, indeed if you look on quarter one to quarter two where basically this de-marketing is basically done, you see the trend which is indeed the trend that could pertain over the quarters, yes. So that is indeed correct.

When it comes to RWA growth, indeed, I mean, let’s be very fair. I mean, we are in the business of serving our clients, yes. The business of serving your clients in Europe means that there will be balance sheet engaged and so there will be some RWA growth. So from that extent, we’re very happy. As we said, we remain optimistic about Europe.

We see accommodating monetary policy. We see low energy prices. We see internal demand. So this basically leads to RWAs. For us 2.5% is charming, because you do know that our diversified approach that is, although integrated, basically delivers year-after-year the equivalent of 100 basis points in Common Equity Tier 1 ratio to its result.

We said that from [indiscernible] so including everything, we pay 45% in dividend, so there’s 55% remaining. If we grew at 2.5% RWAs, that takes off another 20%, so there’s 35% remaining. If I round it, that’s 10 basis points per quarter and so that’s what we’re doing. So that’s our guidance. That might be one quarter a bit different than another quarter, but overall it’s a beat that we kind of like.

If this is the beat we do, I’m very pleased with that.

Alex Koagne: Thank you.

Operator: Next question is coming from the line of Maxence Le Gouvello from Jefferies. Please go ahead. Maxence

Le Gouvello: Yes, good afternoon, Lars.

I will have three questions. The first one is a quick clarification regarding BNL. Is the repositioning of the corporate loan book fully achieved and we just have the lag effect on the revenues right now and it should last for another 6 months? The second question is a follow-up on Lorraine’s question on the U.S. on the BancWest and First Hawaiian. You spoke about the diversification of the revenue that you tried to implement over the last two years with private banking and insurance.

Can we have an idea of what is the breakdown of the private banking asset under]management between First Hawaiian and Bank of the West, please, to have a good idea of where you put most of your effort? And then the last element is more about having a sense of the growth of the corporate that you are able to show in your results in the European retail. Over two quarters, we have seen some pick-up on loan demand. Can you give us a feeling on which sector are asking for loan demand and which kind of products are you placing? Thank you.

Lars Machenil: Maxence, thank you for your questions. On BNL, so basically that de-marketing is done.

So I think that the pivotal point – you never have the last million out of the door, but let’s say that we consider that, end of last year, this was done, so meaning you’ve trailed this, as you say, for six more months in your comparison. When it comes to BancWest, let’s be very fair. When we talked about this cross-selling – when we talked about BancWest which basically includes Bank of the West on American soil and – well, American continent, and First Hawaiian which is in the Hawaiian Islands, let’s be very fair that that main effort is on the Californian kind of franchise. I mean, let’s be very fair. The distance, the intimacy, the diversification of the sectors that are present basically made it that the big part is there, so the majority of the wealth management assets are on Bank of the West.

When it comes to your question on growth in corporates, yes, in Europe, so indeed if you look at it, what we see , I give just a quick picture, so we have seen growth in Europe and the U.S., we have seen resilient stability on the Asia-Pacific side. If you look at Europe, there are several sectors that are – I would say the other way around so that there is the majority of the sectors which are basically working well. If there is one maybe to trim it down a bit, it would be the oil and gas kind of activities where, well, due to a combination of, yes, the intrinsics of that business plus our own kind of approach, I would single out that one. But for the rest, I would basically say across sectors. Maxence

Le Gouvello: But, Lars, on the French, Belgium retail as you are mixing large and SMEs, the loan growth is coming from large or from SMEs or professionals?

Lars Machenil: It depends a bit.

In Belgium there is a big chunk which is coming from the SMEs, yes, where there is a situation that there is still a lot of funding going on and therefore also, let’s be very fair, in Belgium the SME market is a stronger market. Given our market share, we are maybe a tad more present. In Belgium I would say it’s a bit more pivoted towards the SME segment. Maxence

Le Gouvello: Okay. Many thanks.

Have a good break.

Operator: Next question and last question is coming from Geoff Dawes from Societe Generale. Please go ahead.

Geoff Dawes: Great. Thank you very much.

Last question and last. A couple of question in fact. First one on Italy, second one on operational risk, and just two quick ones. First of all, in Italy, obviously there’s the need for a solution there to some of the capital deficits going on. BNL could potentially be asked to participate in that kind of thing.

What would be your stance on that? Is it something that you would be willing to entertain, willing to participate in? What would be your view if BNL was essentially forced to put up a few hundred millions of capital for that kind of situation? Second question on operational risk, you’ve obviously seen one of your peers, Commerzbank, had a operational risk increase in RWAs related to its conduct. Is that something that we can expect to come through at BNP in the coming quarters? Is it something you’re concerned about? Those are the two questions. Thank you very much.

Lars Machenil: Thanks, Geoff. No, on Italy, when there was Atlante being raised, which is a private sector initiative where several banks have contributed because they decided that would help jumpstart the market on non-performing loans.

As I said, we are being asked by the supervisor to stack up, enhance some capital. So in my story of the revenues – sorry, the bottom line generating 110 basis points, I need to have my 35 basis points and therefore I can only, let’s say, grow or allocate the equivalent of 20 basis points to the balance sheet. So that means that I have to make a choice in Italy. Do I basically, in that time, invest in Atlante? Do I invest in serving the economy through BNL? We thought that, for us, as the NPL issue is not a real issue that it was better to basically serve our clients and so that is the stance we took on Atlante. When it comes to op risk, well, I don’t know.

You should ask them. I haven’t seen any conduct issues swinging by, so that means that there shouldn’t be any impact of op risk on conduct.

Geoff Dawes: It’s more the historical conduct issues that came through for Commerzbank and therefore had an increase in the operational risk charge.

Lars Machenil: Yes, but for us, I mean, one, we didn’t have – well, I mean, typically these kind of events are being updated on a quarterly basis. If you’re referring to things that happened a couple of years ago, these are ramificated into the op risk.

As I said, I haven’t seen any file on conduct that would impact the operational risk in the last quarters.

Geoff Dawes: So we shouldn’t be worrying about losing any basis points of Core Tier 1 on operational risk changes for BNP?

Lars Machenil: In the run of the mill, no.

Geoff Dawes: Okay, that’s very clear. Thank you very much.

Lars Machenil: All right, as that was the last question, I will quickly remind you the conclusion of the results.

So we have this growth of the revenues of the operating divisions. Of course, it’s still difficult environment this quarter – decrease of the cost of risk, solid organic capital generation ratio at 11.1% and the ROE in line with the target. So I thank you very much for your presence on this call. For those who have a break, I wish you a very good one. Thank you so much.

Operator: Ladies and gentlemen, this concludes the call of BNP Paribas second quarter 2016 results. Thank you for participating. You may now disconnect.